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Q&A With Blockbuster CEO John Antioco

28 Jun, 2005 By: Thomas K. Arnold

John Antioco

Home Media Retailing recently met with John Antioco, Blockbuster Inc.'s beleaguered 55-year-old CEO, and posed some pertinent questions about the business, about Blockbuster and about both their futures.

Home Media Retailing: It's a completely different business now than when you started. What opportunities have arisen, and what challenges have you had to deal with?

John Antioco: While it's true in life that the only constant is change, in the home entertainment business the only constant is rapid change. I've been the CEO of Blockbuster for eight years, and you're right — the business is dramatically different than when I came on the scene in the summer of 1997. In 1997 and 1998, Blockbuster management was focused on turning around the company based on guaranteed availability, advertising, the introduction of Rewards — our loyalty program — and operational improvements. The business concepts we introduced and the marketing strategies we implemented turned Blockbuster's fortunes around and, I believe, positively impacted the entire video rental industry.

HMR: Media reports again are using the “troubled” adjective before Blockbuster, just as they were before you took over in early 1997, when the video business was in a much-publicized “slump.” Is this fair? Blockbuster has had some down financials, but is it “troubled?”

Antioco: The rental industry is clearly troubled. There's no denying it. However, I think it's important to point out that since 1999 through 2004, Blockbuster's revenue and gross profit have grown at compounded annual rates of 6.3 percent and 6.0 percent, respectively. So that “troubled” adjective applied to Blockbuster is troubling and not accurate. The fact is that we can't stand still; no business can and survive, much less grow the way Blockbuster wants.

HMR: Blockbuster has been doing all sorts of things to lessen its reliance on traditional rental, from the deal you struck early on with DirecTV to sell satellite systems, to your recent foray into used-DVD sales and trading. What types of diversification work, and which ones don't?

Antioco: The transformation strategy that we have been implementing for the past two years is designed, 1) to revitalize our core rental business, and, 2) create alternate revenue sources. While it's still early, our strategy appears to be working, as evidenced by the first-quarter results. The “End of Late Fees” program, which was a huge step — and a very expensive step — for us to take as a company, goes to the heart of our efforts to revitalize our core rental category. This program directly addresses the No. 1 “dissatisfier” customers had with their rental experience and also better positions Blockbuster to compete with home entertainment options that do not have extended viewing fees, including retail DVD, pay-per-view and video-on-demand. And to date, the program is producing the desired results. Since Jan. 1, when we introduced the program, we have had positive growth in active membership for the first time in nearly two years.

HMR: Blockbuster has been trying to increase its share of the video retail market for years, even before you got there. Realistically, is there anything you can do to loosen the mass merchants' grip on the business?

Antioco: It is tough to compete with aggressive pricing by mass merchants who continue to use videos as a loss leader. With that in mind, we are not attempting to go head-to-head with the mass merchants; we're not trying to compete on price. Instead, we are working to differentiate ourselves as a complete source for home entertainment — movies and games; rent, buy and trade; in-store or online. There is no one retailer today — whether brick-and-mortar or online — that offers the unique combination of ways to access movies that Blockbuster does. That is the competitive advantage we are seeking. That is our transformation plan. And as I've already said, that plan seems to be working.

HMR: Why did Blockbuster go after Hollywood Entertainment Corp.?

Antioco: We believed the Hollywood acquisition would have helped us accelerate our plans to bring our expanding array of services to more consumers and to compete more effectively in the changing home entertainment marketplace. Obviously, we were very disappointed the acquisition didn't go through. Unfortunately, the Federal Trade Commission (FTC) had a view of the marketplace from six years ago when we had gone to them the first time about Hollywood, and they said, “no.” We were reasonably confident that their view of the market should change. We did a lot of work to make our case that the market we compete in should be defined as not just in-store video rental but as home video, including retail, rental and online. However, it wasn't to be. I believe that the FTC had its mind made up from the start that the Blockbuster/Hollywood acquisition wasn't going to be allowed to go through.

HMR: What other steps might you consider taking to lift Blockbuster's stock price and get the media to stop using that “troubled” word again?

Antioco: We believe that the best prospects for realizing meaningful value for shareholders will be through the continued implementation and successful completion of our current strategy to transform Blockbuster. Our goal is to finish 2005 in a very powerful way with positive comps, positive growth in active members, a substantial number of members in our in-store subscription program and a growing base of online customers.

HMR: Do you think traditional rental will continue to slide, or do you see an end, a plateau? And what does this mean for Blockbuster, which despite all its diversification still is primarily a rental operation?

Antioco: We know what the industry experts say. And averaging their projections, we come up with a 4 percent annual rate of decline for the domestic video rental market for the foreseeable future. That's not a good scenario for anyone, which is the impetus behind the plan we have been implementing for the past 18 months to change that outcome for our company — to build the brand and Blockbuster, and, as a result, build shareholder value.

HMR: Are subscription rentals a cure-all, part of the cure or a first step toward electronic delivery?

Antioco: Subscription is another way of giving convenience and value. For sure it's not a cure-all. Part of a cure? Maybe. Our goal at Blockbuster is to give customers access to movies and games the way they want it. We do think that our online rental service could give us a platform to enter the VOD space, but right now, we remain focused on the opportunity at hand, which is in-store or online rental of prepackaged media.

HMR: Where do you see Blockbuster in five years? In 10 years?

Antioco: That's a long way out, so rather than address that specific timetable, let me just say that our plan is for the Blockbuster of the future to be providing home entertainment to customers however they want to access it. Our goal — and everything that we are hard at work on today — is to keep the Blockbuster brand one of the best consumer brands in the world and to position our company for the long-term.

HMR: And where do you see yourself in five years? In 10 years?

Antioco: Five years from now? Hard to say. Right now, I'm focused on Blockbuster and delivering on our transformation plan. Ten years from now? Catching a big bass in East Texas.

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